Following the Greek government’s victory in this evening’s confidence vote we expect the necessary fiscal and privatisation laws to be passed on June 30. But, before the July disbursement of EU/IMF funds can be made, the EU has to come up concrete assurances on financing for the next 12 months to fill the funding gap that was previously assumed to come from the market from early 2012. The Eurogroup meeting on July 3 is therefore the key date.
As widely expected, the Greek government won the confidence vote this evening, gaining the support of all 155 PASOK members in the 300-seat parliament. The formal vote on the new Medium-Term Fiscal Strategy (MTFS) on June 30 should now be a formality. In theory the latter should pave the way for the next tranche of funds to be disbursed under the existing EU/IMF programme. But as usual in this Eurozone sovereign crisis, this is not yet clear cut. There is some negotiation to be undertaken first.
At the Eurogroup of finance ministers meeting on Sunday the statement made it clear that passage of the MTFS would allow the next disbursement of funds to be made by mid-July. But the statement also acknowledged that Greece was unlikely to regain market access as planned by early 2012 and that it would therefore require additional funding “financed through both official and private sources” and would “welcome the pursuit of voluntary private sector involvement in the form of informal and voluntary roll-overs of existing Greek debt at maturity”. The finance ministers agreed to define by early July “the main parameters” of the new financing strategy and EC commissioner Ollie Rehn made it clear that he wanted this by the next Eurogroup meeting on July 11 even though some governments had suggested it could take until September.
Subsequently it has become clear that Sunday’s statement is not definitive enough for the IMF which is reported to want a firmer commitment from the other Eurozone countries that there will be sufficient financing in place to fund Greece over the next 12 months before making the next scheduled disbursement of EUR12bn (EUR3.3bn from the IMF and EUR8.7bn from Eurozone bilateral loans). Hence the pressure is now back on the EU to spell out exactly how the additional funds needed by Greece in 2012 will be provided. Hence an earlier Eurogroup meeting has been scheduled for July 3.
The most likely scenario has not changed. We still expect Greece to get the July disbursement and an extended programme out to 2014 although it should be noted that the latter does not appear to be a requirement of the IMF. Acting IMF head, John Lipsky stated yesterday that the IMF is not yet negotiating a new programme with Greece. The IMF just needs concrete assurances from the EU on financing for the next 12 months..
Hence we have yet another time-line to follow. The main event is now the July 3 Eurogroup meeting, although there is still a week or so after that before the Greek government needs the funds:
22 June – second Greek parliamentary debate on draft law for MTFS (which may be amended from May draft version by the new finance minister, Evangelos Venizelos.
23/24 June – EU Council (Heads of State) meeting: should reach an overall final agreement on the revamped EFSF. Likely there is another statement to reiterate that Greece will be given an extended financing facility once it has approved the MTFS, especially if the updated EU/IMF Memorandum of Understanding for Greece has been finalised by then.
28 June – Final version of draft fiscal/privatisation law submitted to Greek parliament
30 June – Parliament formally votes for the MTFS law but, as mentioned above, it is exceptionally unlikely that the government will lose this vote having won tonight’s confidence vote.
3 July – extra Eurogroup meeting to agree new financing strategy
8 July – the new Greek finance minister, Evangelos Venizelos, has suggested the EU/IMF disbursement could be made
Mid-July – widely viewed as the critical date by which Greece needs at least part of the disbursement to be made. The acting IMF head said it was needed by July 15. The Greek PM has said July 18.
Bottom line: Following the Greek government’s victory in this evening’s confidence vote we still expect Greece to be given the July disbursement of EUR12bn of EU/IMF funds and an extended programme out to 2014. But the pressure is now on the EU to come up concrete assurances on financing for the next 12 months to fill the gap left by the assumed lack of market access. Only then is the IMF expected to agree to the next disbursement of funds.
HSBC Global Research